The deal is worth about $40 billion based on a crude oil price of $70 per barrel, said Frank Chapman, chief executive of BG Group, following the signing ceremony in Beijing, China Daily reports.
"These agreements are a landmark development in the relationship between our two companies," he said in a statement.
BG has cooperated with state-owned CNOOC on other projects for almost four years.
Under the terms of parallel agreements between the two companies, CNOOC, one of China's largest offshore oil and gas producers, will acquire a 5 percent stake in certain BG gas reserves in the Surat Basin in Queensland, with a book value of about $270 million.
CNOOC will also become a 10 percent equity investor in an LNG train -- which is what LNG processing lines are called -- and join BG in a consortium to build two LNG ships.
The deal represents the world's first fully termed sale and purchase agreement for the supply of LNG from coal seam gas.
"This project will provide enormous wealth and employment to our country for many decades to come," Martin Ferguson, Australia's minister for resources and energy said in Beijing at the signing ceremony.
"This agreement also demonstrates confidence in Australia's attractiveness as an internationally competitive and safe destination for global capital."
More than $26 billion of Chinese investment was approved in the Australian resources sector in 2008 and 2009, Ferguson said.
Queensland Resources Council chief executive officer Michael Roche told the Australian Broadcasting Corporation the deal would result in $10 billion a year in revenue and 18,000 jobs.
All of the agreements are conditional on Chinese, Queensland and Australian government approvals and on BG Group making the final investment decision.
Geosciences Australia estimates Queensland has enough coal seam gas to power the entire Australian state for more than 1,000 years.
China imported 5.8 million tons of LNG in 2009, said Liu Qi, deputy head of the National Energy Administration, China Daily reports. That's an increase of 67 percent from 2008.
Liu said China -- the world's fastest growing gas market -- would see more natural gas imports because domestic production cannot keep up with the country's rising consumption.
Natural gas accounted for approximately 3 percent of China's total energy consumption last year, with the government planning to raise that level to 5 percent this year.